TaxTMI 
TaxTMI 
2026 (1) TMI 704
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.... substantial investments which were capable of yielding tax-free income and therefore, according to him, the expenditure incurred in relation to earning such exempt income was to be disallowed under Section 14A of the Act. The AO inter alia also observed that, the assessee didn't derive any dividend income from these investments, but had claimed profit to the extent of Rs.1,07,44,451/- earned from sale of Mutual Funds as exempt u/s. 10(39) of the Act. The AO accordingly show caused the assessee to explain as to why expenditure incurred for earning such exempt income should not be disallowed, in accordance with Rule 8D. In response, the assessee explained that, the investments which yielded exempt-income were made out of own funds, and therefore pleaded that no disallowance should be made u/s 14A of the Act. The AO however didn't agree to the objections raised by assessee and for the reasons elaborately set out in the assessment order, computed disallowance of Rs.1,07,44,451/- under Rule 8D, which was added back both while computing income under normal provisions as well as book profit u/s 115JB of the Act. On appeal, the Ld. CIT(A) confirmed the action of the AO by relying on CBDT ....
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....computed with reference to only those investments which yielded the exempt income of Rs.1,07,44,451/- during the relevant year. Having regard to the amended Rule 8D, the AO is directed to recompute and restrict the disallowance to 1% of the monthly average of exempt income yielding investments. Needless to say, the assessee shall provide the relevant month-wise details of investments to the AO to enable him to re-compute the disallowance. 3.4 In so far as the issue relating to disallowance computed u/s 14A r.w. Rule 8D, while computing book profit u/s 115JB is concerned, we find that this issue is no longer res integra in view of the decision rendered by this Tribunal in the assessee's own case (supra), wherein it was held as under: 10. The next issue that came up for our consideration from Ground No.3 of assessee appeal is re-computation of book profit u/s. 115JB of the Act, by making additions towards disallowance u/s. 14A r.w.r. 8D of the Rules. The AO has computed disallowance u/s. 14A of the Act of Rs. 1,46,18,000/- and has made additions to book profit computed u/s. 115JB of the Act. 10.1 The ld.AR for the assessee submitted that the issue is covered in f....
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....23.94 3634.99 ICL Securities Ltd. 0.21 (1996.38) ICL International Ltd. 0 0 Industrial Chemicals and Monomers Ltd 1480.83 1508.00 Total 5,004.98 3146.61 4.1 According to the AO, the interest cost corresponding to these interest-free advance given to the subsidiaries was required to be disallowed and added back as in the earlier assessment years; and he therefore computed disallowance of Rs.24,95,76,400/-. On appeal, the Ld.CIT(A) upheld the AO's action of making the impugned disallowance. Aggrieved, the assessee is before us. 4.2 The Ld. AR submitted that, the assessee had given interest-free advances to its subsidiaries, which were essentially extension(s) of the assessee and were carrying on similar business and therefore the advancement of monies was driven on the principle of commercialexpediency because the assessee had both strategic and economic interests in their well-being and operations. It is therefore the assessee's case that, even if the interest free advances were given out of borrowed capital, the fact remained that it was advanced in the course and for the purposes of business and therefore the corresponding interest paid....
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.... and 2004-05. The CIT(A), however, deleted the addition. This Tribunal in ITA Nos. 778 & 779/Mds/2008 dt. 15th July, 2009 has confirmed an identical order of the CIT(A). In fact, the CIT(A), by following the decision of this Tribunal in assessee's own case for the asst. yrs. 2003-04 and 2004-05 and the judgment of the Apex Court in S.A Builders (supra) allowed the claim of the assessee. Therefore, this Tribunal do not find any reason to interfere with the order of the CIT(A). Accordingly, the same is confirmed. 4.4 Having regard to the position of own interest free funds and the average value of interest free advances, as noted above, we agree with the Ld. AR that, the presumption is that the assessee had given interest free advances [Rs.311.97 crores] from its own funds [Rs.5,109.9 Crs]. Following the above decision (supra) rendered in assessee's own case, we direct the AO to delete the impugned disallowance. This ground is accordingly allowed. 5. Ground No. 4 relates to disallowance of depreciation of Rs.2,66,22,000/- attributable to the fees paid to Dr. K. Venkatesan. The facts concerning this ground are that, the assessee had paid aggregate sum of Rs.34 crores to Dr. ....
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....oss as this payment is disallowed. Hence Rs. 6,00,00,000/- paid during the year to Mr K Venkatesan is disallowed as being not laid out wholly and exclusively for the purpose of business of the Assessee" 5.1 Aggrieved by the aforesaid action of Ld.CIT(A), the assessee is before us. 5.2 We have heard both the parties and perused the material available on record. Though the Ld. AR had pointed out that, this was a recurring issue and it was decided in assessee's favour by this Tribunal in their order dated 01.01.2016 for AYs 2007-08 to 2011-12, wherein the assessee was allowed deduction of Rs.50 lakhs paid to Dr.K. Venkatesan of M/s.Rishi Vidhya Consultants Pvt. Ltd. The Ld. DR however brought to our notice that, this Tribunal had later on distinguished the aforesaid order and deviated therefrom in assessee's own case for AY 2013-14 by order dated 18.08.2021, wherein the Ld.CIT(A)'s action disallowing the payment made to Dr.K. Venkatesan was confirmed, by holding as under: 29. The next issue that came up for our consideration from Ground No.4 of cross objection filed by the assessee is disallowance of payment to Vasthu Consultant, M/s. Rishividya Consultants P Ltd. The l....
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....nsultant Dr. K. Venkatesan. The relevant findings of the Tribunal in ITA Nos. 1343/Mds/2010, 604 & 1299/Mds/2012 are as under:- "64. We have considered the rival submissions on either side and also perused the material available on record. Vastu is depending ITA No.1343 etc upon the belief of a particular individual/group of individuals. It may improve the productivity and profit or may not improve the productivity and profit of the company. But nobody could stand in the way of belief of a particular individual. At the very same time, the assessee cannot make such an exorbitant payment year after year on the ground that it is for business purpose. For the assessment year 2009-10, the assessee has made a payment of Rs. 2,50,00,000/- to M/s Rishi Vidhya Consultants Pvt. Ltd. In the earlier part of this order, this Tribunal allowed the claim of the assessee to the extent of Rs. 50,00,000/- on the ground that it would depend upon the individual belief of the businessman and when the services rendered were not doubted, no disallowance can be made. However, such a huge payment cannot be made year after year. When the assessee claims that payment of Rs. 2,50,00,000/- was made for....
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....uded the subsidy of Rs.24,38,04,415/- from its taxable income. The AO however did not agree with this claim of the assessee and he added the subsidy of Rs.24,38,04,415/- holding it to be taxable income, by observing as under: 9.1. In the Income computation statement, it is noted that the following items, being subsidies received from the State Governments of Maharashtra, Telengana and Rajasthan, were reduced by the assessee. * Capital Subsidy Parli - Sales tax incentive - Rs. 1,98,48,000 * Capital subsidy- Malkapur-Sales tax incentive - Rs. 4,03,25,924 * Power Incentive-Malkapur - Rs. 8,19,94,927 * Capital subsidy-Rajasthan-Sales tax incentive - Rs. 10,16,35,564 9.2 The assessee was asked to show cause vide this office notice u/s 142(1) dated 19.08.2019 as to why the above items should not be treated as revenue receipts and the claim of deduction in the computation statement be not disallowed. The assessee submitted that the receipts relating to Parli Unit, Maharashtra, were in the nature of capital subsidy granted to the unit / incentive for investing in the backward area and hence, the same has been deducted from income for in....
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.... in nature, is no longer relevant as the position of law is noted to have has underwent change from AY 2016-17 and onwards. It is observed that, in the Finance Act, 2015, the Legislature has amended the definition of 'income' by inserting clause (xviii) in section 2(24), which read as under:- "assistance in the form of subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than subsidy or grant or reimbursement which is taken into account for determination of actual cost of the asset in accordance with the provision of Explanation 10 to clause (1) of section 43." 6.4 It is noted that, under the above provision, subsidies, grants, cash incentives, duty drawback, waivers, concessions or reimbursements provided by the Central or State Governments either in cash or kind, will be included within the meaning of term "income" and consequently, will be taxable under the Act. The genesis of above amendment can be traced back to judicial precedents in which capital subsidy (the benefit of subsidy b....
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....)(xviii) by the Finance Act, 2015, by holding as under: "12. Proceeding further, we find that the provisions of Sec.5 provide the scope of total income. It provides that subject to the provisions of this Act, total income of a person who is resident would include all income from whatever sources derived which is received or deemed to be received in India or income which accrue or arise or deemed to accrue or arise in India. The heads of income has been carved out in Section 14 of the Act. The provisions of Sec.14 provide for heads of income under which such income would be assessable. These provisions provide that save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified in five distinct heads of income i.e., Salaries, Income from House Property, Profits and Gains of business or profession, capital gains or income from other sources. In other words, once an item has been found to be covered within the meaning of 'income', the same shall have necessarily to be classified in distinct heads of income and computations of tax would be made accordingly. Since the definition of income ....
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....he case, the logical conclusion that would follow would be that after amendment of the definition of 'income, there was no separate requirement of bringing corresponding amendment to Sec.28 since clause (i) was wide enough or in fact, was already governing the treatment of such subsidies. Therefore, the argument of Ld. AR that there should be corresponding amendment in the charging provisions before an item could be brought to tax is not acceptable. These arguments stand rejected. 14. Upon perusal of amendment, we find that the effect of amendment made in Sec.2(24) by Finance Act 2015 w.e.f. 01.04.2016 by way of insertion of Clause (xviii) would be that income would include any assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43. The effect of the amendment, i....
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....d by the assessee, stand dismissed." 6.6 Considering the above amendment to section 2(24) of the Act and decision of this Tribunal (supra), we are of the view that the decision rendered in assessee's own case for AY 2013-14 is no longer applicable, due to change in position of law. We are therefore of the view that the lower authorities had rightly taxed the impugned subsidy as income of the assessee. Accordingly, this ground of the assessee stands dismissed. 7. Ground No. 6 raised by the assessee relates to disallowance of royalty payable to the Government on limestone excavation. According to the AO, the royalty paid to the Government on limestone excavation was subject to the rigors of Section 43B of the Act and was deductible only on actual payment basis. The AO observed that, the provisions of Sec. 43B covers "Any sum payable by way of tax, duty, cess or fee, by whatever name called under any law for the time being in force" and that the amount provided for in the books of account as per the demand made under the Mines and Mineral (Development Regulation) Act was subject to Section 43B of the Act. The AO noted that, the assessee had provided an amount of Rs.13,25,77,002/....
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....s. 20,01,72,380)net disallowed amount brought forward from previous asst year 2015-16/2016-17, a sum of Rs. 8,36,64,107/- was paid/reversed due to the Notification dt. 17th September, 2015 by Ministry of Mines, Government of India reducing the Royalty payable. The copy of the GO was also produced for verification. Accordingly, the disallowance for the current asst year 2017-18 is worked out as follows: Provision of Current year to be disallowed = Rs. 12,26,90,265 Less: Allowance of payment wrt AY 2015-16/16-17 = Rs. 8,36,64,107 Disallowance : Rs. 3,90,26,158/- 7.1 Aggrieved by the above action of the Ld. CIT(A) partly confirming the disallowance made by the AO, the assessee is now in appeal before us. 7.2 Heard both the parties. Though the Ld. AR appearing for the assessee vehemently contended in support of this ground, but was neither able to controvert the above findings of the Ld. CIT(A) nor was he able to show as to why the royalty payable to government under the Mines and Mineral (Development Regulation) Act cannot be subject to the provisions of Section 43B of the Act. We thus see no reason to interfere with the impugned action of the Ld. CIT(A), which....
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....sions and after perusal of the material placed before us, we agree with the first contention of the Ld. AR that, Section 115JB being a code in itself, the provisions of Section 43B which is applicable for computing income under the head 'Profits & Gains of Business' cannot be imported into the computation mechanism set out in Explanation (1) to Section 115JB of the Act. Rather, the AO is required to ascertain whether the impugned provision can be added back or not, under any of the specified clauses set out in Explanation (1) to Section 115JB of the Act. We find that the lower authorities have not examined this aspect at all and on similar facts, this Tribunal had set aside the issue back to the file of the AO in the earlier year(s) to decide the matters afresh. Respectfully following the same, we set aside the issue back to the file of the AO and direct him to decide the allowability of the impugned provision while computing book profit u/s 115JB de novo, and in light of Explanation (1) to Section 115JB of the Act alone. Needless to say, the assessee shall be afforded opportunity to substantiate that, the provision for leave encashment was in the nature of ascertained liability or....
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....essee accordingly prepared stand-alone accounts of said eligible unit in terms of Section 80-IA(5)/(7) of the Act. As the power generated by these eligible units assessee was actively consumed by the manufacturing unit, such transfer of power qualified as a reportable specified domestic transaction in terms of Section 80-IA(8) read with Section 92BA of the Act. The transfer pricing auditor duly reported this intra-unit transfer in Form 3CEB filed for AY 2020-21 and the said specified domestic transaction was benchmarked following the Comparable Uncontrolled Price Method [hereinafter referred to as CUP]. While undertaking the benchmarking exercise, the non-eligible unit was taken as the 'tested party' and the transfer price of power supplied by the eligible units to the manufacturing unit was benchmarked at the annual average of the landed cost at which power was being supplied by the respective State Electricity Boards to the manufacturing unit(s). Having regard to the transfer price so determined, the assessee computed the profits derived from the generation and supply of electricity from these units at Rs.6,79,51,564/- for the Kayathar Windmill and Rs.21,77,10,267/- for t....
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....he Tribunal, which is placed at Pages 17-20 of the paper book, we notice that, similar type of downward TP adjustment was made for Assessment Year 2018-19 for the transfer value of power by the CPP to the manufacturing unit of the assessing. This Tribunal in IT(TP)A No. 66/Chny/2022, vide order dated 31.05.2023, after considering the arguments of both the sides and following the settled judicial precedents, decided in favour of assessee observing as follows:- "7. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that an identical issue has been considered by the Tribunal in assessee's own case for assessment year 2013-14 in ITA No. 737/Chny/2018, where the Tribunal under identical set of facts and also by following certain judicial precedents, including the decision of Hon'ble High Court of Bombay in the case of CIT vs Reliance Industries Ltd (Supra) held that while computing deduction u/s. 80IA of the Act for power generation companies for captive consumption, the rate charged by electricity distribution companies to its consumers should be considered instead of rate at which the power generatin....
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....ration at which the electricity board supplied power to its consumers rather than the rate at which the power generating companies supply its power to the electricity board was to be taken as the price. Further, this view has been supported by the decision of the Hon'ble Bombay High Court in the case of Commissioner of Income Tax vs. Reliance Industries Limited and as also the decision of the Hon'ble Chhattisgarh High Court in the case of Godavari power and Ispat Limited reported in [2014] 42 Taxman.com 551 (Chhattisgarh). As it is noticed that the learned CIT(A) has followed judicial discipline by following the decision of this Tribunal in the case of Sri Velayudhaswamy Spinning Mills Vs Deputy Commissioner of Income Tax and Eveready Spinning Mills vs. Assistant Commissioner of Income Tax referred to supra, as it is noticed this view has also been approved by the Hon'ble High Courts referred to supra, we find no error in the order of the learned CIT(A) which calls for any interference. It may be mentioned here that the deduction u/s. 80IA is the deduction from the total income of the assessee the profits and gains of an eligible undertakings. The Hon'ble Gujarat Hi....
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....pect of deposit of Specified Bank Notes [in short 'SBNs'] to the extent of Rs.41,06,000/- during the period of November-December 2016. The facts relating to this issue are that, the during the Demonetization period, the assessee had deposited an amount of Rs.76,21,000/- by way of SBNs and the assessee claimed that an amount of Rs.41,06,000/- was collected as non-permitted cash receipts. The AO treated the impugned sum as unexplained cash credit and added it to the income of the assessee u/s 68 of the Act. On appeal, the CIT (A) confirmed the addition of Rs.41,06,000/-holding as under: "Hence, I am constrained to conclude that the above cash deposits were held by the Assessee as on 08.11.2016 outside the books of account. After demonetisation announcement, the Assessee brought in the same in the books of account claiming as cash received from the borrower cash collection. Accordingly the cash deposits of Rs. 41,06,000/- which was collected as non-permitted receipts is treated as unexplained cash credit and added as income of the Assessee under Section 68. It is tobe noted that the unexplained cash credit of Rs. 41,06,000/- is taxed @ 60% without set off of any loss or deduc....